Financial freedom is one of the significant achievements in one’s life, and that is something I am still aiming for even in my early thirties. And managing personal finance is something that I wish I knew when I first started earning my money in my twenties. But now, as I understand the value of these 5 things, I want to share them here so that you can avoid making such mistakes. So let’s dive into it.

Saving and Debt

So this sounds quite obvious that you should save money but trust me when you get your first salary cheque all you want to do is buy all the stuff you ever wished for, go out for dinners or movies or clubbing with friends, purchase gifts for your loved one and that is all great you should do all that BUT.. by the end of the month you end up exhausting your entire bank account, and you are left with nothing. You say to yourself, I will save from next month, and that next month turns into months and months into years, and you end up saving nothing. In fact, which brings me to debt, debt are two types good debt and bad debt, but that is a whole different topic to cover. What I want to talk about in this one is bad debt. Imagine a scenario, at the end of the month, you end up exhausting all your hard earn salary and your laptop breaks, or your bike breaks down, or some medical emergency came up; what you do is either you have a credit card, and you charge all the expense on that, or you ask a friend to lend you some money. If you borrowed money from a friend, he or she might not charge you any interest, or they may even give you time to pay it later, but you will have to pay it eventually. And if you have a credit card from any bank, then you will have to return the borrowed amount and an additional interest over it, so you end up paying more money to the bank, and if you don’t pay on time, they charge you financial charges plus you end up having a bad credit score. How can I avoid this? Glad you asked! All you need to do is:

1. Be more thoughtful about your spending, and plan out the expense you want to make. Calculate all your fixed costs like rent, phone bills, food expenses and then see what the most essential thing that you need to buy this month, be thoughtful about your buying habits, don’t impulsively buy anything instead, wait for a day and tell your self “I will buy it tomorrow”, trust me you will end up not buying it.
2. Divide your income into the following categories and fix a percentage of your income used for each type. The ratio can vary based on your goals and income but make sure to put something for each section.
   1. Fixed expense
   2. Investments
   3. Emergency funds
   4. Money in hand. Now whatever remains, spend it as you wish. Note you can also keep some amount for donations as it helps you maintain a sense of inner peace.
3. Keep track of your income and expense. This is very simple, you must have seen your parents maintaining a diary for all their monthly payments you have to do the same, you can do it on excel, Evernote or how I do it on Notion. And it has to be pretty simple to start; just note the date, expense, where you spent that money, and that it’s. This will help you understand where you are spending your money and how you can manage it better. Because as Peter Druker once said, “Whats get measured, Gets Managed.” So measure your expense to better manage your finance.

Emergency Funds

One of the must-do to manage your finances right is to have emergency funds, and with the times like the pandemic, it has taught me how important it is to have an emergency fund. As the name implies, an emergency fund is the funds you keep aside for an emergency and not buying a new iPhone just because you want the latest model. No matter what happens, you never touch your emergency funds. But when can you use that, so take an example its month’s end, and you have used up all your salary, and you dropped your phone and broke your screen, or you fell sick, and you have to get some tests done, and medicines, but with all your salary exhausted how you will get your phone repaired or get your medicines and medical tests done. If you are the smart one, something which I wasn’t in my twenties, you have your emergency funds which you have been keeping aside each month will have your back. You can save 20-30% of your income in emergency funds depending on your income and other expenses, but the rule of thumb I will repeat again never touch your emergency fund until its life and death for you. And in case you use your emergency fund, try to save the used amount from your following month income and cut down on your leisure expense.

Investments

Start investing; if you want to see your money grow, start investing in mutual funds and shares. Why mutual funds and not saving accounts or FD’s you may ask, its simple maths the inflation rate in India hovers around 5-6%, and most saving accounts give you around the same rate of interest or less depending on how much money you keep in your savings account and FD rates are somewhere from 2-5% in most of the significant banks. So in a year, your saving will still have less or the same value that it had one year back. On the other hand, mutual funds and investing in shares can give you up to 15-20% interest in a year or even a month. So just start investing, it is risky at times, but with some guidance and patience, you will always make money. There are various ways of investing in mutual funds and shares:

1. Consult a financial Manager; if you don’t know anything about finance and mutual funds and shares, I recommend consulting a wealth managers or if you happen to have a CA in your family, go to them. They will guide you on the best investments to make based on your income.
2. Invest through other brokers: Now days investing has become very simple; everything is available on tap your fingers. Various companies have started online broking with minimum to zero brokerage and a straightforward process to begin your financial journey, Zerodha, Upstox, Groww and many more companies for your investments. I personally use Groww as my go-to for investments. Through Groww, you can invest in Mutual Funds, Shares, and even invest in digital Gold, and they have also started international stock trading; and sign up process is very simple, and you can open a trading account in no time investing. Start with mutual funds, and what you can do is create a SIP (Systematic Investment Plan).
   Sign UP on Groww: https://groww.app.link/refe/roshi7647927

Insurances

Why insurances are essential? Is something I realised during my covid journey. All the tests and the expense of surgery became a threat to all my savings. I did have medical insurance that was not the problem. The problem was my sum insured was a mere 1.5 lakh rupee, and most medical insurances don’t cover 100% medical expense and vary from illness to illness; as for my sinus surgery, only 10% of the total sum insured was covered. The tip here is to monitor and compare your health insurance, see if it has significant illnesses and tests covered and a sum cover that is at par with current medical expenses. And the second insurance that you need is life insurance or a term plan, both have their pros and cons, and you can choose either of them after consulting a financial advisor. These help future-proofing your family if something happens to you.

Multiple Streams of Income

This should have been the first point for the blog, but save the best for the last. Gone are the days when doing the same job for years and waiting for that yearly increments and slowly climbing the ladder of growth and wealth. In the modern-day and age, it’s a must to have multiple streams of passive income. Along with your job or business, work on other ideas that require less of your time but gives you monthly or yearly earnings. It can be all kinds of things, you can start with investing in shares which gives yearly dividend, invest in properties that pay you monthly rents, you can create a Youtube channel, start a blog, you can start teaching online, start a side hustle and have your own business along with your job, start a podcast. There are various platforms and ways that can help you in developing multiple streams of income. Check out this video from Ali Abdaal about 9 Passive income ideas.

And that’s it; I hope you learnt a few things from my financial mistakes and start a journey of economic freedom and being wealthy.